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The World Bank Europe and Central Asia (ECA) Economic Update Annual Meetings Istanbul October 3, 2009. More than $350 billion of ECA’s foreign debt matures in 2010. Source: World Bank, DEC Prospects Group. Economic Update The Crisis Hits Home. Office of the Chief Economist

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The world bank europe and central asia eca economic update annual meetings istanbul october 3 2009 l.jpg

The World BankEurope and Central Asia (ECA)Economic UpdateAnnual MeetingsIstanbulOctober 3, 2009


Slide2 l.jpg

More than $350 billion of ECA’s foreign debt matures in 2010

Source: World Bank, DEC Prospects Group


Economic update the crisis hits home l.jpg

Economic Update 2010The Crisis Hits Home

Office of the Chief Economist

Human Development Sector Management Unit

Poverty and Economic Management Sector Management Unit

Europe and Central Asia Region

World Bank

Annual Meetings

Istanbul, October 2009


Main points l.jpg
Main points 2010

Good news for enterprises, but foreign debt clouds the future

Industrial production stopped falling in mid-2009

But $350 billion of external debt due in 2010

Bad news for families as poverty and unemployment rise, while household debt clouds the future

Poverty will rise by almost 15 million instead of falling by 15 million in 2009

Stress tests indicate more debt distress likely for households in 2010

Tough times ahead for governments, and social security debt clouds the future

Fiscal deficits will rise from 1.5 to 5.5 percent of GDP in 2009

Stress tests indicate pension deficits rising to 5-6 percent of GDP

4



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Industry has stopped shrinking 2010

Industrial production, percentage change (saar)

Middle-East & North Africa

East Asia & Pacific

South Asia

Developing

Europe & Central Asia

Latin America

Source: World Bank, DEC Prospects Group.


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Interest rates are lower 2010

Emerging-market bond spreads have fallen but remain higher than pre-crisis levels

Corporate bonds

(CEMBI Global)

Sovereign bonds

(EMBI Global)

Before Lehman Brothers

Source: World Bank, DEC Prospects Group


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Business regulations are better 2010

Countries that made at least one positive reform in 2008 (%)

Leading Ten Doing Business Reformers in 2008

Rwanda

Kyrgyz Republic

Macedonia, FYR

Belarus

United Arab Emirates

Moldova

Colombia

Tajikistan

Egypt, Arab Rep

Liberia

Source: World Bank, Doing Business 2009


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But debt obligations loom 2010 large

More than $350 billion of ECA’s foreign debt matures in 2010

Source: World Bank, DEC Prospects Group


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Bad news for families as poverty and unemployment rise, while household debt distress clouds the future


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Poverty will rise while household debt distress clouds the future

Increases in poverty and vulnerability (change in people living on <$5/day)

This graph needs to be redone,

with a stacked bar chart with both

Poverty (<$2.50) and vulnerability

(2.50-5.00)

Source: World Bank Staff

11


Poverty will rise everywhere l.jpg
Poverty will rise everywhere while household debt distress clouds the future

Share of households below national poverty lines

Note: Estimates are not comparable across countries.

Source: World Bank Staff


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Rising job losses while household debt distress clouds the future

Registered unemployment has risen in almost every country since mid-2008

Source: World Bank Staff


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Job losses most in middle-income ECA while household debt distress clouds the future

Growth of unemployment rates, 2009 over 2008, percent

Source: World Bank Staff


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Unemployment in Turkey has doubled while household debt distress clouds the future

Registered unemployment in Turkey, February 2008 to August 2009

Source: World Bank staff


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Incomes in Turkey have been falling while household debt distress clouds the future

Evidence from Turkey finds a particularly large hit to self employment income

Source: World Bank-UNICEF Survey


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The sources of household distress while household debt distress clouds the future

Shocks are transmitted to households through financial, product and labor markets

Source: World Bank 2009: The Crisis Hits Home


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Household stress tests show distress while household debt distress clouds the future

Severe Stress likely in Bosnia, Croatia, Estonia and Hungary

18

Source: World Bank Staff



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Rapid fiscal deterioration in 2009 the future

Central and Eastern European government accounts were hit sooner

Source: World Bank Staff


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Social protection spending the future

ECA spends a lot on public pensions (percent of GDP)

Source: World Bank staff estimates and OECD Social Expenditure Database.

Most data from 2000 to 2003.


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Good coverage of social assistance the future

Is lowest in ECA’s poorest countries, but compares favorably with other regions

22

Source: World Bank Staff


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And reasonable targeting the future

Not all goes to poor, but accuracy compares favorably with programs in other regions

23

Source: World Bank Staff


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Reforms needed for social security the future

The reforms that help the most are inflation indexing and higher retirement ages

24

Source: World Bank staff


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Crisis is not over the future. Countries in Emerging Europe and Central Asia face a slow recovery

No green shoots for workers

Tighter money ahead. Post-crisis growth will likely be lower, and fiscal deficits higher

Smaller budgets for governments

Fiscal consolidation, not indiscriminate cuts. More efficiency of spending can mean more growth and more equity

Better prospects for both families and firms

Messages


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How the World Bank is helping the future

Supporting budgets

Increased lending (IBRD/IDA): $3.8bn in 2007, $4.2bn in 2008, $9.3bn in 2009

Operations in Armenia, Bulgaria, Georgia, Hungary, Latvia, Poland, Romania, Serbia, Tajikistan, Turkey, and Ukraine

Strengthening institutions

Helping countries such as Belarus, FYR Macedonia and Turkey improve social assistance programs

Helping middle income countries strengthen banking systems

Helping all countries improve social service delivery mechanisms

Improving policies

Public expenditure reviews, e.g., in Poland, Lithuania, Russia, and Latvia to identify areas for efficiency

Economic reports, e.g., in Croatia and Central Asia to strengthen integration in Europe and Eurasia

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More information the future

27

World Bank, 2009: The Crisis Hits Home: Stress Testing Households in Europe and Central Asia, Report No. 50158-ECA.

[email protected]

[email protected]


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